Industry Sales and Market Shares

Besides estimating total potential and area potential, a company needs to know the actual industry sales taking place in its market. This means identifying competitors and estimating their sales.

The industry trade association will often collect and publish total industry sales, although it usually does not list individual company sales separately. With this information, however, each company can evaluate its own performance against the industry’s. If a company’s sales are increasing by 5 percent a year and industry sales are increasing by 10 percent, the company is losing its relative standing in the industry.

Another way to estimate sales is to buy reports from a marketing research firm that audits total sales and brand sales. Nielsen Media Research audits retail sales in various supermarket and drugstore product categories. A company can purchase this information and compare its performance to the total industry or any competitor to see whether it is gaining or losing share, overall or brand by brand. Because distributors typically will not supply information about how much of competitors’ products they are selling, business-to-business marketers operate with less knowledge of their market share results.

The few products or services that lend themselves to easy forecasting generally enjoy an absolute level or a fairly constant trend, and competition that is either nonexistent (public utilities) or stable (pure oligopolies). In most markets, in contrast, good forecasting is a key factor in success.

Companies commonly prepare a macroeconomic forecast first, followed by an industry forecast, followed by a company sales forecast. The macroeconomic forecast projects inflation, unemployment, interest rates, consumer spending, business investment, government expenditures, net exports, and other variables. The end result is a forecast of gross domestic product (GDP), which the firm uses, along with other environmental indicators, to forecast industry sales. The company derives its sales forecast by assuming it will win a certain market share.

How do firms develop their forecasts? They may create their own or buy forecasts from outside sources such as marketing research firms, which interview customers, distributors, and other knowledgeable parties. Specialized forecasting firms produce long-range forecasts of particular macroenvironmental components, such as population, natural resources, and technology. Examples are IHS Global Insight (a merger of Data Resources and Wharton Econometric Forecasting Associates), Forrester Research, and the Gartner Group. Futurist research firms produce speculative scenarios; three such firms are the Institute for the Future, Hudson Institute, and the Futures Group.

All forecasts are built on one of three information bases: what people say, what people do, or what people have done. Using what people say requires surveying buyers’ intentions, composites of sales force opinions, and expert opinion. Building a forecast on what people do means putting the product into a test market to measure buyer response. To use the final basis—what people have done—firms analyze records of past buying behavior or use time-series analysis or statistical demand analysis.

Survey of Buyers’ Intentions

Forecasting is the art of anticipating what buyers are likely to do under a given set of conditions. For major consumer durables such as appliances, research organizations conduct periodic surveys of consumer buying intentions, ask questions like Do you intend to buy an automobile within the next six months? and put the answers on a purchase probability scale:

0.00	0.20	0.40	0.60	0.80	1.00
No chance	Slight possibility	Fair possibility	Good possibility	High possibility	Certain

Surveys also inquire into consumers’ present and future personal finances and expectations about the economy. They combine bits of information into a consumer confidence measure (Conference Board) or a consumer sentiment measure (Survey Research Center of the University of Michigan).

For business buying, research firms can carry out buyer-intention surveys for plant, equipment, and materials, usually falling within a 10 percent margin of error. These surveys are useful in estimating demand for industrial products, consumer durables, product purchases where advanced planning is required, and new products. Their value increases to the extent that buyers are few, the cost of reaching them is low, and they have clear intentions they willingly disclose and implement.

When buyer interviewing is impractical, the company may ask its sales representatives to estimate their future sales. Few companies use these estimates without making some adjustments, however. Sales representatives might be pessimistic or optimistic, they might not know how their company’s marketing plans will influence future sales in their territory, and they might deliberately underestimate demand so the company will set a low sales quota. To encourage better estimating, the company could offer incentives or assistance, such as information about marketing plans or past forecasts compared to actual sales.

Sales force forecasts yield a number of benefits. Sales reps might have better insight into developing trends than any other group, and forecasting might give them greater confidence in their sales quotas and more incentive to achieve them. A “grassroots” forecasting procedure provides detailed estimates broken down by product, territory, customer, and sales rep.

Expert Opinion

Companies can also obtain forecasts from experts, including dealers, distributors, suppliers, marketing consultants, and trade associations. Dealer estimates are subject to the same strengths and weaknesses as sales force estimates. Many companies buy economic and industry forecasts from well-known economic-forecasting firms that have more data available and more forecasting expertise.

Occasionally, companies will invite a group of experts to prepare a forecast. The experts exchange views and produce an estimate as a group (group-discussion method) or individually, in which case another analyst might combine them into a single estimate (pooling of individual estimates). Further rounds of estimating and refining follow (the Delphi method).58

Past-Sales Analysis

Firms can develop sales forecasts on the basis of past sales. Time-series analysis breaks past time series into four components (trend, cycle, seasonal, and erratic) and projects them into the future. Exponential smoothing projects the next period’s sales by combining an average of past sales and the most recent sales, giving more weight to the latter. Statistical demand analysis measures the impact of a set of causal factors (such as income, marketing expenditures, and price) on the sales level. Finally, econometric analysis builds sets of equations that describe a system and statistically derives the different parameters that make up the equations statistically.

When buyers don’t plan their purchases carefully, or experts are unavailable or unreliable, a direct-market test can help forecast new-product sales or established product sales in a new distribution channel or territory. (We discuss market testing in detail in Chapter 20.)

1. 
   To carry out their analysis, planning, implementation, and control responsibilities, marketing managers need a marketing information system (MIS). The role of the MIS is to assess the managers’ information needs, develop the needed information, and distribute that information in a timely manner.
   
2. 
   An MIS has three components: (a) an internal records system, which includes information on the order-to-payment cycle and sales information systems; (b) a marketing intelligence system, a set of procedures and sources used by managers to obtain everyday information about pertinent developments in the marketing environment; and (c) a marketing research system that allows for the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation.
   
3. 
   Marketers find many opportunities by identifying trends (directions or sequences of events that have some momentum and durability) and megatrends (major social, economic, political, and technological changes that have long-lasting influence).
   
4. 
   Within the rapidly changing global picture, marketers must monitor six major environmental forces: demographic, economic, social-cultural, natural, technological, and political-legal.
   
5. 
   In the demographic environment, marketers must be aware of worldwide population growth; changing mixes of age, ethnic composition, and educational levels; the rise of nontraditional families; and large geographic shifts in population.
   
6. 
   In the economic arena, marketers need to focus on income distribution and levels of savings, debt, and credit availability.
   
7. 
   In the social-cultural arena, marketers must understand people’s views of themselves, others, organizations, society, nature, and the universe. They must market products that correspond to society’s core and secondary values and address the needs of different subcultures within a society.
   
8. 
   In the natural environment, marketers need to be aware of the public’s increased concern about the health of the environment. Many marketers are now embracing sustainability and green marketing programs that provide better environmental solutions as a result.
   
9. 
   In the technological arena, marketers should take account of the accelerating pace of technological change, opportunities for innovation, varying R&D budgets, and the increased governmental regulation brought about by technological change.
   
10. 
    In the political-legal environment, marketers must work within the many laws regulating business practices and with various special-interest groups.
    
11. 
    There are two types of demand: market demand and company demand. To estimate current demand, companies attempt to determine total market potential, area market potential, industry sales, and market share. To estimate future demand, companies survey buyers’ intentions, solicit their sales force’s input, gather expert opinions, analyze past sales, or engage in market testing. Mathematical models, advanced statistical techniques, and computerized data collection procedures are essential to all types of demand and sales forecasting.
    

One of the widely debated issues in developing marketing programs that target certain age groups is how much consumers change over time. Some marketers maintain that age differences are critical and that the needs and wants of a 25-year-old in 2010 are not that different from those of a 25-year-old in 1980. Others argue that cohort and generation effects are critical, and that marketing programs must therefore suit the times.

What brands and products do you feel successfully “speak to you” and effectively target your age group? Why? Which ones do not? What could they do better?

James M. Phelps, Jr./Shutterstock

Microsoft is the world’s most successful software company. The company was founded by Bill Gates and Paul Allen in 1975 with the original mission of having “a computer on every desk and in every home, running Microsoft software.” Since then, Microsoft has grown to become the third most valuable brand in the world through strategic marketing and aggressive growth tactics.

Microsoft’s first significant success occurred in the early 1980s with the creation of the DOS operating system for IBM computers. The company used this initial success with IBM to sell software to other manufacturers, quickly making Microsoft a major player in the industry. Initial advertising efforts focused on communicating the company’s range of products from DOS to the launch of Excel and Windows—all under a unified “Microsoft” look.

Microsoft went public in 1986 and grew tremendously over the next decade as the Windows operating system and Microsoft Office took off. In 1990, Microsoft launched a completely revamped version of its operating system and named it Windows 3.0. Windows 3.0 offered an improved set of Windows icons and applications like File Manager and Program Manager that are still used today. It was an instant success; Microsoft sold more than 10 million copies of the software within two years—a phenomenon in those days. In addition, Windows 3.0 became the first operating system to be preinstalled on certain PCs, marking a major milestone in the industry and for Microsoft.

Throughout the 1990s, Microsoft’s communication efforts convinced businesses that its software was not only the best choice for business but also that it needed to be upgraded frequently. Microsoft spent millions of dollars in magazine advertising and received endorsements from the top computer magazines in the industry, making Microsoft Windows and Office the must-have software of its time. Microsoft successfully launched Windows 95 in 1995 and Windows 98 in 1998, using the slogan, “Where Do You Want to Go Today?” The slogan didn’t push individual products but rather the company itself, which could help empower companies and consumers alike.

During the late 1990s, Microsoft entered the notorious “browser wars” as companies struggled to find their place during the Internet boom. In 1995, Netscape launched its Navigator browser over the Internet. Realizing what a good product Netscape had, Microsoft launched the first version of its own browser, Internet Explorer, later that same year. By 1997, Netscape held a 72 percent share and Explorer an 18 percent share. Five years later, however, Netscape’s share had fallen to 4 percent.

During those five years, Microsoft took three major steps to overtake the competition. First, it bundled Internet Explorer with its Office product, which included Excel, Word, and PowerPoint. Automatically, consumers who wanted MS Office became Explorer users as well. Second, Microsoft partnered with AOL, which opened the doors to 5 million new consumers almost overnight. And, finally, Microsoft used its deep pockets to ensure that Internet Explorer was available free, essentially “cutting off Netscape’s air supply.” These efforts, however, were not without controversy. Microsoft faced antitrust charges in 1998 and numerous lawsuits based on its marketing tactics, and some perceived that it was monopolizing the industry.

Charges aside, the company’s stock took off, peaking in 1999 at $60 per share. Microsoft released Windows 2000 in 2000 and Windows XP in 2001. It also launched Xbox in 2001, marking the company’s entrance into the multibillion-dollar gaming industry.

Over the next several years, Microsoft’s stock price dipped by over $40 a share as consumers waited for the next operating system and Apple made a significant comeback with several new Mac computers, the iPod, the iPhone, and iTunes. Microsoft launched the Vista operating system in 2007 to great expectations; however, it was plagued with bugs and problems.

As the recession worsened in 2008, the company found itself in a bind. Its brand image was tarnished from years of Apple’s successful “Get a Mac” campaign, a series of commercials that featured a smart, creative, easygoing Mac character alongside a geeky, virus-prone, uptight PC character. In addition, consumers and analysts continued to slam Vista for its poor performance.

In response, Microsoft created a campaign entitled “Windows. Life Without Walls” to help turn its image around. The company focused on how cost effective computers with its software were, a message that resonated well in the recession. It launched a series of commercials boasting “I’m a PC” that began with a Microsoft employee (looking very similar to the PC character from the Apple ads) stating, “Hello, I’m a PC and I’ve been made into a stereotype.” The commercials, which highlighted a wide variety of individuals who prided themselves on being PC owners, helped improve employee morale and customer loyalty.

Microsoft opened a handful of retail stores—similar to Apple stores—in 2009. “The purpose of opening these stores is to create deeper engagement with consumers and continue to learn firsthand about what they want and how they buy,” Microsoft said in a statement.

Today, the company offers a wide range of software and home entertainment products. In the ongoing browser wars, Internet Explorer holds a 66 percent market share compared to Firefox’s 22 percent and Safari’s 8 percent. In 2009, Microsoft launched a new search engine called Bing, which challenges Google’s dominant position in the marketplace and claims to give better search results. Microsoft’s most profitable products continue to be Microsoft Windows and Microsoft Office, which bring in approximately 90 percent of the company’s $60 billion in revenue.

Chris Howes/Wild Places Photography/Alamy Images

Walmart, the giant chain of discount stores, is the second largest company in the world, with over $400 billion in revenue and 2.1 million associates (or employees). The phenomenal success story began in 1962 when Sam Walton opened up his first discount store in Rogers, Arkansas. He sold the same products as his competitors but kept prices lower by reducing his profit margin. His customers quickly caught on and the company took off almost immediately. Walton’s EDLP (Every Day Low Price) strategy remains the foundation of Walmart’s success today. Through the company’s economies of scale, Walmart is able to offer customers top brand-name products for the lowest price.

Walmart expanded throughout the United States in the 1970s and 1980s by acquiring some of its competitors and opening new stores. The first Walmart Supercenter—a discount store with food outlets, an optical center, photo lab, hair salon, among other amenities—opened in 1988. By 1990, Walmart had become the nation’s number one retailer, with $32 billion in revenue and stores in 33 states. The company’s international expansion began with a store outside Mexico City in 1991 and has grown to over 3,800 international locations, some under a different brand name.

Walmart thrives on three basic beliefs and values: “Respect for the Individual,” “Service to Our Customers,” and “Striving for Excellence.” Sam Walton’s original 10-foot rule—“I promise that whenever I come within 10 feet of a customer, I will look him in the eye, greet him, and ask if I can help him.”—still governs today, embodied by the “greeters” at the front door. In addition, Walmart embraces the communities in which it enters in order to develop strong local relationships and build its brand image in the area. The company donates significant amounts of money to local charities through its “Good Works” program, hires local individuals, and purchases food from local farmers.

Walmart’s marketing strategy has evolved over the years. Early marketing efforts were based on word of mouth, positive PR, and aggressive store expansion. In 1992, Walmart introduced its well-known tagline, “Always Low Prices. Always,” which effectively communicated the company’s core brand promise and resonated with millions. In 1996, Walmart launched its price rollback campaign featuring the familiar yellow smiley face as the star of the campaign. The smiley face happily slashed prices in Walmart’s television commercials and appeared on store signage as well as employees’ aprons and buttons. The campaign helped Walmart’s stock soar 1173 percent in the 1990s.

Walmart hit a few bumps in the road as it entered the 21st century, and critics protested its entry into small communities. In one study at Iowa State University, researchers found that within 10 years of a new Walmart store opening, up to one-half of the small stores in that town can disappear. Walmart also faced multiple lawsuits from employees who complained about poor work conditions, exposure to health hazards, and pay below minimum wage, which left employees with families below the poverty line. In some cases, employees said Walmart failed to pay for overtime and prevented them from taking rest or lunch breaks. Another lawsuit claimed the company discriminated against women in awarding pay and promotions. These problems led to a very high turnover rate in the 2000s. According to one Walmart survey, 70 percent of employees left the company within the first year of employment due to lack of recognition and inadequate pay.

From 2000 to 2005, Walmart’s stock price fell 27 percent and remained low from 2005 to 2007. Negative backlash, combined with Target’s reemergence on the retail scene, contributed to the decline. Target revamped its stores, merchandise, and marketing strategy to appeal to a more aspirational discount buyer and stole some of Walmart’s top-tier customers. Target stores were nicely lit, offering wider aisles and better-displayed merchandise. Target’s television commercials featured attractive models and trendy clothes from high-end designers such as Isaac Mizrahi and Liz Lange. One analyst stated, “Target tends to have more upscale customers who don’t feel the effects of gasoline prices and other economic factors as much as Walmart’s core customers might.” From 2003 to 2007, Target outperformed Walmart in same-store sales growth by 1.7 percent and profit growth by 5.7 percent. During this time, Walmart also lost the exclusive rights to use the smiley face in its marketing campaign.

For all these—and other—reasons, Walmart decided it was time for a new direction and launched a series of new initiatives to help improve sales and its image. First, it introduced a highly successful $4 generic drug campaign, a program eventually copied by Target. Walmart also launched several environmentally friendly initiatives such as constructing new buildings from recycled materials, cutting transportation costs and energy usage, and encouraging customers to buy more green products.

In 2007, Walmart introduced a new marketing campaign and tagline, “Save Money. Live Better.” Television commercials highlighted the company’s positive impact on decreased energy costs, increased 401(k) (retirement) savings, good employee health care coverage, and increased family savings. One commercial stated, “In today’s economy, nobody’s more committed to helping family budgets go further than Walmart. Walmart saves the average family about $3,100 a year, no matter where they shop.”

Walmart also used the new campaign and aggressive price cuts to attract new consumers affected by the recession. It slashed prices on popular toys and electronics during the holidays and implemented a massive store remodeling effort called Project Impact. As a result, stores became cleaner, aisles less cluttered, and merchandise easier to reach—all to help improve the overall shopping experience and steal customers from Target.

Walmart’s tactics worked: Same-store sales rose and its stock price improved during the recession. Analysts explained that Walmart’s product mix—45 percent consumables (food, beauty, health items)—is a better strategy in a poor economy than Target’s product mix—20 percent consumables and 40 percent home and apparel products. One analyst said, “Walmart sells what you need to have as opposed to what you want to have.”

Stephen Quinn, Walmart’s CMO, stated, “We are fortunate that this recession came along. It played to our positioning really well. But our own insecurity is that all the credit would go to the external environment and none of the work we all did. The kinds of things we were working on anyway when this environment came along are the same things we need to do to keep these so-called new customers and I think continued to build loyalty with our existing base.”

Today, Walmart has stores in 16 international markets and serves more than 200 million customers a week through its variety of discount stores. These include Walmart Supercenters, Discount Stores, Neighborhood Markets, and Sam’s Club warehouses.